2025 Federal Budget Summary

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Below are the tax highlights from this year’s budget announced on November 4, 2025:

Tax Changes

No change to capital gains tax: The proposal to change the inclusion rate on capital gains from a 1/2 to 2/3 is not included in the list of previously announced measures to pursue in 2025 budget.

Home Accessibility Tax Credit, a non-refundable tax credit that applies at the lowest personal income tax rate on up to $20,000 of eligible home alteration expenses per calendar year. Currently, expenses incurred under the Medical Expense Tax Credit are also eligible to be claimed simultaneously for the Home Accessibility Tax Credit. Budget 2025 proposes that an expense claimed under Medical Expense Tax Credit cannot also be claimed under the Home Accessibility Tax Credit. The proposed change will apply for the 2026 taxation year.

Extension for estate loss carry-back rule from the 1st taxation year to the 1st three taxation years: Was introduced as a technical change and it seems that this will proceed with retroactive effect to deaths on or after August 12, 2024.

Tax returns completed automatically by CRA: Starting in 2025, persons with income below the personal exemption amount will have their tax returns completed automatically by CRA, if they meet certain conditions.

Bare trust arrangements filing has been deferred again for one year to 2026 taxation year. No filing is required for the 2025 taxation year, with tax returns would be due in March, 2026.

No underused housing tax (UHT) for 2025 onwards: Note however that the filing requirements for 2022 to 2024 remain for the taxpayers who are not exempt, with penalties and interest for failing to file if applicable.

The 10% luxury tax to purchase boats and aircraft will be removed but will remain applicable to vehicles costing over $100,000.

Auditing the incorporation of truck drivers: CRA had been allocated $75 million over 4 years to pursue non-compliance in the trucking industry (e.g. failure to report fees for service in a T4A), and with respect to the incorporation of truck drivers, who take the position that they are self-employed. This project, which may extend to looking at personal services businesses, has the potential to broaden beyond the trucking industry, and uncertainty whether CRA will broaden enforcement of filing T4As to other industries.

Businesses are generally required to report fees paid to other businesses for services provided. Payments that exceed $500 in a calendar year must be reported on a T4A slip. While these slips are technically required, CRA has had a longstanding policy of not assessing penalties for failure to report fees for service in a T4A. CRA recently concluded a review and external consultation on these reporting requirements.

Incentives For Business

Increase in the incentives for SR&ED: The amount of expenditures, qualifying for the higher investment tax credit rate of 35%, will now be $6 million annually. This is increased from the $4.5 million limit announced in the 2024 Fall Economic Statement (that limit itself being an increase from the long-standing expenditure limit of $3 million). The increased limit applies to taxation years beginning on or after December 16, 2024.

Immediate expensing of buildings used in manufacturing and processing: In order to take this 100% deduction, a minimum of 90% of the floor space must be used for manufacturing or processing of goods for sale or lease. In addition, unless the property is new, it must be acquired at arm's length, and not on a so called “rollover" basis. The proposal applies to buildings acquired on or after November 4, 2025, and must be placed in use before 2030. Otherwise, the rate of depreciation is reduced to 75% (for 2030 and 2031) and 55% (for 2032 and 2033). After that, the enhanced rate of deduction will not be available.

If you need further understanding on how the budget changes might affect you, please contact us.

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The content of this pamphlet is prepared by IMPACT CPA LLP for information only and are not intended to provide professional advice as individual situations will differ. We would be please to discuss your specific situation and tailor a tax plan to meet your requirements